What economics can learn from physics – the Principle of Least Societal Tension

The trouble with historians (and this includes economic historians) is that they base their arguments on what hashappened, not on what could happen. Physicists, on the other hand, no sooner have a theory than they are testing its limits – does it apply at higher speeds? in Outer Space? inside a Black Hole? and so on. I am talking of physics supplying general qualitative help and injecting grand conservatory and regulatory principles. In view of the intractability of economics (too many parameters, the impossibility of carrying out controlled experiments, the frequently irrational behaviour of individuals, etc.) combined with our desperate need to have answers, this sort of help must not be ignored.

For centuries there were two competing schools: those that sought ‘perpetual motion’ and those that thought this quest was vain (because ‘the total cause must equal the total effect’). The second school came through victorious, and eventually (and this is one of the most exciting stories of all time) this led to a deep discovery – the discovery of ‘energy’, and the fact that energy cannot be created or destroyed. From this physics tells us that, in an ‘isolated system’, an endlessly growing economy is an absurdity.

One may counter: “the system in the case of economics is not isolated: we may in the future obtain resources from other planets, or from deep within the Earth, or from within atomic nuclei through fusion, and so on”. Some hi-tech’ enthusiasts add “we’ll never run out of human ingenuity!”. However, past societies have not always managed to find a technological fix, or find one in time. As it says in the Monty Python song, we cannot guarantee the supply of intelligent life on Earth. Moreover, humans, whether intelligent or not, still need to eat, drink, breathe, use energy, and use materials, some rare or difficult to obtain (palladium, indium, erbium, dysprosium, and so on). However ingenious we are at recycling, or switching to alternatives, we must realize that all these resources are finite.

Ultimately, all our activities, even our very existence, implies the conversion of some ‘high-quality’ energy into ‘low-quality’ energy – heat. This inescapable truth arises from the physics law known as the Second Law of Thermodynamics. Not only does this net conversion-to-heat contribute to Global Warming, but the resulting higher average ambient temperature has the consequence of making all physical processes (running engines, running cities, staying alive, the growing of plants, etc.) run less efficiently (see my article “Global Warming and the Second Law of Thermodynamics”).

Now in physics, and in the other natural sciences, we learn how to carry out experiments in a ‘closed system’, and we sometimes refer to the outside of the system as ‘the surroundings’ or ‘the environment’. We used to always be able to make the assumption that ‘the surroundings’ are unaffected by us, but now we have rather quietly passed some important Earthmarks: Peak Oil, then Peak Child (see Hans Rosling’s website), and now Peak-Unaffected-Surroundings or, less of a mouthful, Peak Denial.

There’s an important question: “how have neoliberal economies, such as the US economy, done so well?” The answer – and physics guides us once more – is that we must not jump to general conclusions from highly special starting conditions. In other words, the huge success of the US economy since 1776 does not prove the correctness of the economic model, rather, it is testimony to the special starting condition, ‘We-got-there-first’. (In the case of the US, the advantage conferred by this special starting condition may soon be all played out.)

All the way through this article has been the concept of ‘the system’. What is a physical system? It is a region bounded in space and time, and with certain specified ingredients – (a bit like a football half that takes 45 minutes, occurs on a pitch of specific dimensions, requires 22 players, and a football, and proceeds by given rules). Now, we come to a very interesting input from physics, arising from the deep wisdom known as the Principle of Least Action. This Principle, of all principles in the whole of physics, rests on the understanding that the system is all, and ‘the whole [system] is more than the sum of its parts’ .

In detail, the Principle states that the total kinetic energy ‘counteracts’ the total potential energy, both at each instant of time and over the whole time-window of the problem. The ‘action’ (the difference between kinetic and potential energy through time) must be ‘least’. Never mind if you don’t understand this – it takes many years of study – because we are immediately going to take it to a new level of generality.

We must understand that kinetic energy is really just an example of a system-‘component’, and potential energy is an example of a ‘superstructure’ within the system (see my article “The Principle of Least Action – why it works”). The Principle then postulates that there is an interplay between the components and the superstructures such that the stable outcome for the whole system is when the quantitative difference between them is ‘least’.

So much for the physics. Now we employ the Principle of Least Action as an analogy and attempt to extend its wisdom to economics. We identify component energies with individual people in a society, and energy superstructures with societal structures (such as cities, countries, commerce, the national health service, education, communications, agriculture, sports, music, and so on). Then the Principle can be recast into economics as “To achieve the most stable and prosperous society, the ‘tension’ between individuals and society must be the least possible.” Our confidence that we are allowed to do this comes from the fact that this Principle of Least Action is the deepest founding principle across the whole of physics – it is staggeringly successful, explaining almost every physical process. Also, physics and economics face a similar philosophical problem: in physics, ‘component-energy’ and ‘superstructure-energy’ cannot be cleanly excised one from the other; likewise, in economics, ‘individual’ and ‘societal-superstructure’ can never be cleanly separated, they are continually inter-dependent and mutually affecting each other. It is by the clever use of an optimization principle that this dilemma is overcome in physics – so perhaps an optimization principle will, as well, help to increase our understanding in economics?

The Scottish Enlightenment thinker, Adam Smith, was aware of the outstanding success of Newton’s mechanistic worldview in the natural sciences. Smith was inspired to treat economics in the same way, that is, to consider an economic system as made up from simple elemental parts (individuals). He postulated that the best outcomes for the whole of society occur when individuals act solely “from their regard to their own interest” (extract from“The Wealth of Nations”, 1776). Liberal Economists in the 20th century embraced this model, and Margaret Thatcher even went so far as to say “There is no such thing as society” (in other words, there are only individuals). While we acknowledge that Adam Smith’s work represented a huge advance we now, some 240 years on, understand that both his and Thatcher’s claims are woefully too simplistic (her Press Office later softened her statement, but not enough). Einstein famously said that a good explanation should be as simple as possible, but not more simple than was possible. More than that, we can at last realize that Smith and Thatcher’s pronouncements are also impossibly asymmetric: the needs of individuals are crucial but so are the needs of societal-structures – the two cannot be separated one from the other. For example, as well as ‘trickle-down’, there must also be ‘trickle-up’ (whereby individuals think not only of their own needs, but promote and contribute towards societal structures). In short, the analogy from physics is showing us that some sort of ‘societalism’ – socialism – is essential.

Newtonian Mechanics has been replaced by the Principle of Least Action; it is time to replace Neoliberal Economics by the Principle of Least Societal Tension.